The major averages closed lower as investors digested the latest round of disconcerting economic data. Volume, an important indicator of institutional sponsorship, was reported higher than Monday's totals on the NYSE and on the Nasdaq exchange which marked another distribution day for the major averages. Decliners led advancers by about a 3-to-2 ratio on the NYSE and on the Nasdaq exchange. There were 42 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, lower than the total of 51 issues that appeared on the prior session. New 52-week highs substantially outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

Before Tuesday's opening bell, two tepid economic reports were released which suggested stagflation may be on the horizon (higher inflation coupled with low economic activity). The producer price index (PPI) surged while the Empire State manufacturing index plunged. Surging energy prices played a primary role in sending the headline PPI number higher in November but investors were concerned when core prices (which exclude food and energy) also rose. The headline number jumped +1.8% after increasing by +0.3% in October. Not only was the reading sharply higher than October's reading but it also smashed the Street's estimate for a +1% increase and was the first year on year increase in several quarters. Elsewhere, manufacturing in the New York region fell short of analysts' estimates and barely came in above zero for December. In addition, the 2.55 reading was way below November's reading of 23.51 and October's total of 34.57, suggesting lackluster growth.

At 1:00pm EST, the National Association of Home Builders released their housing market index. The index, which rates the overall economy and housing market conditions, fell 1 point in December to 16 which is a very low reading. Respondents are still concerned that credit conditions remain very tight which hinders the buyer's ability to make new purchases. All this data sent the US dollar higher which put additional pressure on US stocks.

On Tuesday, each of the major averages pulled back from logical resistance levels. The Dow Jones Industrial Average and benchmark S&P 500 index closed just below 10,500 and 1,115, their respective levels of resistance. The Nasdaq Composite Index closed just above 2,200 which has served as an important level of resistance for the tech-heavy index. At this point, the action remains healthy as long as the major averages remain above their respective 50-day moving average lines. A slew of economic data is slated to be released this week and, as always, it will be very important to see how the market reacts to that news. On Wednesday, the Federal Reserve will conclude its 2-day meeting on interest rates. In addition, the consumer price index (CPI) and the latest housing starts are slated to be released.

PICTURED: The Dow Jones Industrial Average closed just below resistance (10,500) today.

The influential financial indices continued struggling on Tuesday.  There was a negative bias for the Bank Index ($BKX -2.90%) and Broker/Dealer Index ($XBD -1.29%), and the Retail Index ($RLX -1.18%) also added pressure on the major averages.  The loss for the Gold & Silver Index ($XAU -1.85%) erased more than the prior session's gain while sending it further below its 50-day moving average (DMA) line.  Tech shares also had a negative bias as the Networking Index ($NWX -0.94%), Biotechnology Index ($BTK -0.44%), Internet Index ($IIX -0.39%), and Semiconductor Index ($SOX -0.38%) ended unanimously lower.  The Integrated Oil Index ($XOI -0.17%) closed with a slight loss, meanwhile the Healthcare Index ($HMO +0.77%) and Oil Services Index ($OSX +1.38%) were standout gainers.

Charts courtesy www.stockcharts.com

PICTURED: The Bank Index ($BKX -2.90%) has struggled below its 50-day moving average (DMA) line since turning downward in October, and its recent chart lows are now a support level to watch above its 200 DMA line.

Smartheat Inc (HEAT +$0.07 or +0.42% to $16.59) has risen well beyond its "may buy" level after enduring some distributional pressure last week including negative reversals on 12/04/09 and 12/08/09. A steep upward trendline connecting recent chart lows helps define an initial support level to watch. It rose more than 20% in the first 2-3 weeks, so an investment system rule designed to help investors capture exceptional gains from the market's biggest winners now suggests to hold for a minimum of 8 weeks.  

The number of top-rated funds owning an interest in its shares rose from 3 in Jun '09 to 26 in Sept '09, which is reassuring concerning the I criteria. The 3 latest quarters show sales revenues and earnings increases well above the +25% guideline, satisfying the C criteria. There is limited history for this small Chinese firm in the Pollution Control - Equipment group, however its reported annual earnings (A criteria) history has been strong. HEAT was first featured at $12.00  in yellow in the 11/17/09 mid-day report (read here) when technically rising from a "double bottom" base, reaching a new all-time high.

Color Codes Explained :
Y - Better candidates highlighted by our staff of experts.
G - Previously featured in past reports as yellow but may no longer be buyable under the guidelines.